Wednesday 20 March 2013

A Cycling Budget

That, I guess, is what one refers to as “irony”.  Or oxymoron, perhaps.

In more than 30 years making my living as a tax expert, I don’t think I have ever seen a budget which had anything material to say about cycling.  There are of course occasional, peripheral measures:  the maximum permitted mileage rate for cycle travel allowances will change from time to time, as does the comparable benefit rate for car mileage.  Schemes such as the cycle to work scheme for tax-relieved purchase of a bicycle was introduced, and modified.  That really is about it.

Rates of tax or duty, which may indirectly impact cycling, also change from time to time.  Broadly speaking, there are two different approaches.  The first is taxes set as a rate on value:  income tax is levied as a percentage of income above various thresholds; capital gains tax similarly on capital gains from sale of assets (not including your own home);  VAT is a percentage of sales price of most goods and services; stamp duty a percentage of the sale price of some classes of asset, principally shares and real estate; Insurance Premium Tax is a sales tax on the value of an insurance premium.

The second is a tax or duty by quantity:  hydrocarbon fuels by the litre;  ditto alcoholic beverages; cigarettes by the pack, tobacco by the kilogram;  air passenger duty per flight.

So what is a tax increase?  Raising the rate of income tax is clearly a tax rise – paying more tax on the same income.  Increasing the rate of VAT is also clearly a tax rise – paying more VAT on goods whose cost hasn’t changed.

Is an increase in fuel duty a “tax rise”?  No, not really, unless it is significantly out of step with the increase in the price of fuel, and that is hard to measure because apart from pipeline delivered fuel like gas or electricity, the price is fairly volatile.  For example my last delivery of home heating oil cost about 59p per litre but the market price now is about 64p.  Come the summer, it might well drop again.

An increase in duty on road fuel has historically been set to follow inflation.  From time to time we may have something more, like the Fuel Duty Escalator:  this was supposed to be a year-on-year increase in the real cost of road fuel but it was only implemented once to my knowledge and, in any case, for all the chancellor’s – any chancellor’s – talk about tax rate changes a year or more out, the truth about our tax system is that the whole lot has to be set by Act of Parliament every single year, a safeguard which I believe was introduced when William Pitt the Younger first introduced income tax as a means of paying for fighting the Napoleonic Wars.  The Provisional Collection of Taxes Act permits a government to continue collecting taxes under last year’s Finance Act temporarily – until 4 August – but if they fail to obtain Royal Assent for a new act by then, they can no longer collect any tax!  That is why, in an election year, we typically have more than one Finance Act.  The first is to establish the right to collect taxes for another year, and is got out of the way before parliament is dissolved, and the second deals with all the matters of substance.

Anyway, back to the subject.  In among the budget documents which run to several hundred pages and which are mainly about obscure technical stuff like corporate members of limited liability partnerships, an HMRC press release confirms that the proposed 1.9p per litre increase in fuel duties, planned for September, has been cancelled.  In fact, there hasn’t been an increase in road fuel duties since George Osborne took office in 2010.  Had the “planned” increases not all been cancelled, like this one, road fuels would now be about 13p per litre more than they are now.    

In an inflationary environment, not increasing fuel duty is a tax cut on motoring. In my view, it sends all the wrong messages – of our total thrall to the car, the lack of imagination about alternatives, our willingness to bankrupt ourselves with billions spent addressing obesity, diabetes, heart disease etc, our lack of consideration for our children who will have to inherit the mess we have made, or our elderly who through no fault of their own can’t join the car club, or our poor who can’t afford to.

Self-interested lobbyists, claiming to speak on behalf of “the hard pressed motorist” or “hard working families” demand moratoria on duty increases.  They even demand cuts, to relieve pressure on our pockets, and to boost the economy.  They have been remarkably successful:  it is not only that there haven’t been any increases for nearly three years now, but the real cost of fuel, in constant price terms, has declined.  Rod King, of 20splenty, tweeted that the Sunday Times had printed a table which shows that the average annual spend on fuel has declined, from £1,508 in 1973 to £1,422 today, although to be fair this is more to do with improved fuel consumption of modern cars than the per-litre cost of fuel.  Having said that, the 1973 cost predates the Oil Shock and the Yom Kippur War of October 1973, when crude oil prices doubled almost overnight, and have never really come back down since.

I don’t know whether the ST is trying to make a point here – I rarely get round to the “Driving” supplement, so haven’t read the article – but they sound like perhaps they are not patsies for Big Car.  Not like the Daily Mail.  In its print edition today – I know, but when you are in a waiting room, trying to pass the time, you sometimes have to stoop so low – in a table of annual tax outlays it quotes the “average family” spending about £1,600 pa on fuel duty, compared with about £2,000 in VAT.

Although the provenance of this figure is Grant Thornton & KPMG, two major accounting firms, I have to say I find this figure implausible.  The current rate of road fuel duty for everything apart from LPG is a shade under 58p per litre.  At that rate, the “average family” must be buying 2,500 litres of petrol or diesel a year, in other words driving nearly 25,000 miles.  However, the point is that misinformation of this type is all part of the lobbying and special interest pleading of the motor industry and the big oil companies, through their patsies in the press.

You could relieve pressure, and boost business, every bit as easily, and a great deal more fairly, by cutting something else.  VAT apparently costs that “average family” more than fuel duty does, and applies to most of the things we buy – not basic food, children’s clothes, and a few other things, but even so poorer people are more likely to benefit from a VAT cut than a fuel duty cut, because they can’t afford cars so don’t buy petrol or diesel at all.  (Actually, a VAT cut would presumably cut the price of petrol too!)  National Insurance Contributions are heavily weighted towards lower earners – the employee contribution being only 2% above about £30k pa – so while savings would have to be passed on, a cut there would benefit lower income groups most – or arguably reduce the cost of employing new staff and so bring more people out of the dole office.  Cutting income tax for the low-paid, for example by increasing allowances but shrinking he basic rate band so the better off don’t benefit, would do more to help “hard-working families” than a fuel duty cut ever will.

But what do you suppose they gave us?  As Harry Lime would have said, “a Cuckoo Clock”

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